By Karin A. Grablin, CPA, CFP®, MBA

The unpredictability of the markets and the economy has reset plenty of retirement plans, and that’s been especially true for business owners – including medical practices.

Business owners on the brink of retirement are facing potentially the worst conditions for selling or handing off a business in decades. Their circumstances should serve as a lesson to their younger counterparts: it’s critical to build an exit plan that works under both sunny and stormy conditions.

Exit plans are essential in practices large and small, and not strictly for the purpose of letting the owner and founder retire. They certainly set in motion a series of triggering events for the owner to get his or her money out of the business at retirement, but they also incorporate succession and other strategic moves a practice might make to assure its future in “family” hands (the other owners in the business) or in the hands of a new owner.

That said, an exit plan isn’t born in a day. In fact, many financial experts in investment, tax, valuation and estate planning disciplines think it’s wise for business owners to come up with the first broad strokes of an exit plan when they start a company if possible, and if not, within 3-5 years of the date they’d like to exit. A Certified Financial Planner™ professional with specific business expertise can be a helpful liaison to work with other key professionals to help owners find answers to the broadest issues in any practice’s exit plan, including: 

•      The business legacy – should a business be passed on to associates, or should it simply be sold or closed?

•      The owner’s own career goals – does he or she want to do this for the rest of his/her life, or should he/she make way for other professional or personal directions?

•      The practice’s overall creation of wealth – too many people think of a business as a job and a paycheck instead of a creator of wealth that can support one or more generations. While a paycheck supports short-term goals, wealth from building equity in a business is an accumulated asset that can either be re-invested smartly in the business or invested outside the business to support family, personal or philanthropic goals.

•      The owner’s retirement strategy that allows them to do everything they have dreamed of doing after they leave.

Planners can help owners get to more specific questions based on the broader goals they have discussed with family members:

•      How many more years does the owner want to run this business?

•      What’s the optimal way to get out of the business – sell it, transfer it to associates or just close it down?

•      What’s the value of the business now and how can it be made more valuable to potential buyers or for transition to the next generation?

•      If the company is being transferred or sold to associates, is there a growth plan in place that they have contributed to and are, therefore, likely to follow?

•      What happens if there is an unforeseen event or market downturn that threatens the business or the industry as a whole? Are there healthy relationships in place with potential acquirers?

•      What if there was a great offer on the practice tomorrow?

•      If the practice is sold, how do owners protect themselves from a personal and business tax standpoint?

•      How does the owner communicate his or her ideas with others that have a stake in the practice?

•      What about employees, clients and patients?  How will they be served/protected if the owner dies or leaves the business?

•      How much money does the owner want after leaving the practice and how should it be handled?

•      How should investors in the practice be compensated if the owner leaves?

•      Are there specific goals that should be met by the practice before the owner leaves?

An exit plan allows an owner not only to move out of a business, but also to make a wholesale career change. No one has to stay in the same industry – or practice – for life, and with an exit plan, owners leave open the possibility for an endpoint that will allow them to engage in any number of new business activities or other lifestyle pursuits.

And while the economy is struggling back from the brink, many smart exit planners realize that there are ways to manage delayed transitions without losing valuable employees. For instance, many owners may elect to take a sabbatical while allowing next-generation leadership to get behind the wheel before an official transition takes place. Such a move lets the next generation steer the boat on the schedule they hoped for instead of standing in place while the owner found his/her best opportunity to go. The owner, meanwhile, benefits from the chance to step away from the day-to-day operation to better plan his/her own future as well as that of the practice. 

With all the turmoil of this past year, if you haven’t already re-visited your retirement strategy, now is the time to speak with a qualified financial planning professional. Be sure to include business exit planning strategies as part of your discussion.